Agreements signed on implementation of public service pay rises

In July 2002, a national agreement was signed in Hungary's National Labour Council for Public Employees (KOMT) on the implementation of a 50% average pay increase for public service employees introduced by the new Socialist-led government. Following the KOMT recommendations, eight ministries had signed agreements with trade unions on the distribution of the available extra pay resources by late August. Although these sectoral and subsectoral agreements cannot be deemed as collective agreements with legally enforceable status, acting rather as recommendations for local governments running public service institutions, they should make a major contribution to a fair and negotiated distribution of the available funds for pay increases.

An 'incomes policy package' issued by the new coalition government of the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) and liberal Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ) has, among other measures, increased public service employees’ pay by an average of 50% from 1 September 2002 (HU0207102F). The government decision on the new wage scale for public employees and on securing the appropriate budgetary resources was preceded by background negotiations between the new government and public sector trade unions. Negotiations between the government and public sector unions continued after the parliamentary approval of the wage increase - first at national level and then within different ministries responsible for various public services. By late August 2002, eight sectoral and subsectoral agreements on the distribution of the available extra resources for pay had been signed between the respective ministries and their partner trade union federations.

National-level negotiations

On 5 June 2002, only 10 days after the new government came to power, the Prime Minister met with representatives of all public sector unions at the headquarters of the Coordination Forum for Trade Unions (Szakszervezetek Együttműködési Fóruma, SZEF), the main public sector confederation. The negotiations resulted in an agreement, of which two items dealt with the coming pay increase. The central provision of the agreement was that the necessary financial resources for the wage increase will be fully covered by the central budget, and that the government will transfer these additional budget payments as 'earmarked' funds to those ministries, local governments or non-governmental organisations which run public service institutions.

This is a crucial development in the history of interest reconciliation in the Hungarian public sector, as in the past several central governmental wage increase packages had failed to be fulfilled completely, because the public administration units (for instance, local governments) running public services often used the additional funding for financing other public tasks. The current agreement rules out spending these funds for purposes other than raising the wages of public service employees.

The Prime Minister and the trade unions also jointly declared that the rules for the sector-specific redistribution of the wage increase should be established through sectoral dialogue between the respective ministries and trade unions, and that the measures should cover all employees in the given sector.

Incidentally, another important point of the agreement is a promise urgently to set up a Public Sector Interest Reconciliation Council (Közszolgálati Érdekegyeztető Tanács, KÉT) - a new national-level forum for the whole sector covered by the state budget, which will include employers and trade unions representing both public service employees and civil servants. The agreement also envisages long-term cooperation between the government and public sector unions in order to create unified legal regulations for the whole budgetary sector, and to modernise public services.

KOMT agreement

The next round of the national-level negotiations took place in the National Labour Council for Public Employees (Közalkalmazottak Országos Munkaügyi Tanácsa, KOMT), the current top-level forum for negotiations on issues affecting the working and living conditions of public service employees. In the course of the negotiations, KOMT evaluated the impact of the government wage measure and reviewed the methods used, and reached a ground-breaking general agreement over the rules for the distribution of wage increases. The importance of this agreement is that it complements the legal regulations concerning the financing of public sector institutions.

According to the provisions of the relevant law, when new wage scales are introduced, the various responsible public administration units (for instance, local governments and ministries) are required to claim earmarked subsidies, which amount to the difference between the new and the old wage scales calculated for each public employee on an individual basis, including compulsory wage supplements. The law, however, does not prohibit these units from redistributing this central governmental funding for pay across different public service institutions. Similarly, public service institutions - ie the actual employers (such as schools, surgeries, or social work providers) - enjoy autonomy over how to distribute excess resources among different groups of employees or individuals. Thus, it is not guaranteed that groups of employees with current salaries higher than the minimum threshold specified by the wage scale will get raises in line with the full difference between the new and the old wage scales and thereby maintain their advantageous position.

The agreement signed in KOMT on 15 July 2002 provided the following detailed guidelines for the subsequent sectoral negotiations and for the responsible public administration units running public services.

  1. On receiving the subsidies, the responsible public administration units should calculate carefully their available financial resources exceeding the compulsory wage increase (ie the cost of paying the salaries according to the new wage scale). These extra resources should be used exclusively for further increases in salaries and wage supplements.
  2. The public administration units should conclude an agreement with the relevant trade unions on the utilisation of the available resources referred to in the previous point. KOMT recommends avoiding rechannelling extra resources between different sorts of public services run by the same public administration unit. The government pledged to do the same in public services run directly by the ministries.
  3. Each ministry should sign a sectoral agreement with the respective sectoral trade union(s) by 2 August 2002 concerning the sector-specific rules for distribution of the wage increases.
  4. The first payment of the increased salaries is due at the beginning of October 2002. Therefore, the public administration units running public services should negotiate and make their decisions sufficiently quickly to leave enough time for local collective bargaining between employers and trade union organisations within the institutions providing public services, and to carry out individual wage determination.

Sectoral agreements

Following the KOMT agreement, eight sectoral/subsectoral agreements have been signed between ministries and their respective trade union partners. All agreements refer to and follow the recommendations of KOMT. However, the majority of the agreements take into consideration the special circumstances of the sector, define new rules for the given ministry and formulate recommendations for lower-level wage measures and negotiations. Special regulations envisage improving the position of certain groups of low-wage workers and other groups left out of the scope of present measures. For this purpose, some sectoral agreements require further subsidies from the central budget. In some agreements, the signatory parties view the present initiative as a first step towards a comprehensive four-year sectoral agreement. The particular features of the agreements are as follows.

  • The Ministry of Health, Social and Family Affairs (Egészségügyi, Szociális és Családügyi Minisztérium, ESZCSM) and seven trade unions have agreed on the method for distribution of the available funding for wage increases. As with the institutions financed directly from the central budget, the Ministry waived its right to rechannel subsidies across employers, while it called on local governments to act similarly concerning the institutions for which they are responsible. Healthcare providers financed through the National Health Insurance Fund (Országos Egészségügyi Pénztár, OEP) receive subsidies directly from the budget, and employers should spend the excess resources for wage 'corrections'. The Ministry and the trade unions have asked for further subsidies from the special reserve fund of the government in order to raise salaries for low-skilled employees in the sector, whose actual pay increase will be far less than 50% due to an earlier increase in the minimum wage. The agreement specifies the identity of these occupational groups.
  • The Ministry of National Cultural Heritage (Nemzeti Kulturális Örökség Minisztériuma, NKÖM) has signed an agreement with two unions in its sector. Although the agreement endorses the ban on rechannelling wage subsidies across different sorts of services, a fairly complicated procedure has been devised for the redistribution of excess monies across employers in order to provide higher increase for institutions with lower actual salaries. To achieve this objective, with the consent of the Union of Public Archives and Public Education Workers (Közgyűjteményi és Közmüvelődési Dolgozók Szakszervezete, KKDSZ), the agreement gives authorisation for the Ministry to 'eliminate unjustified disadvantages' through the classification of institutions based on a wage survey. Another novelty in this agreement is that it aims to take care of employees in the sector working under the regulations of the Labour Code, rather than the law on public employees, and therefore not eligible for the current 50% increase (under the previous government, a number of public institutions were converted into business organisations, and simultaneously their workers’ public employee status was also terminated). Similar to that in the healthcare sector, this agreement enumerates the workplaces in which pay rises should be covered by the government's special reserve fund.
  • The Ministry of the Interior (Belügyminisztérium, BM) and this sector's nine trade unions have signed an agreement that basically follows the KOMT recommendations, with the Ministry guaranteeing that each institution will receive the full amount of the subsidies from the state budget. In spite of this, trade unions are not at all satisfied with the pay increase to be awarded. The agreement’s introductory paragraph states that public employees in this sector will receive an average increase of only 37.5%, to due to the sector's low share of public employees with higher education (it is a particular feature of the institutions under the Ministry of the Interior that employees with higher education in higher positions usually enjoy civil servant, rather than public employee, status). However, the agreement tries to address this problem: along with setting the deadlines for lower-level social dialogue, it envisages further negotiations up until 15 October 2002 to supplement the actual pay increase up to 50% on average. As with the other sectors mentioned above, the Ministry of the Interior agreement also calls for the supplementary increases to be financed from the government's special reserve fund.
  • The Ministry of Education (Oktatási Minisztérium, OM) has signed two agreements, one with the five trade unions in public education, and the other with the Trade Union of Employees in Higher Education (Felsőoktatási Dolgozók Szakszervezete, FDSZ). These agreements basically repeat the KOMT recommendations - the Ministry pledges to refrain from any sort of rechannelling of funds and recommends further bargaining at lower levels. The same holds for the other three agreements - signed by the Ministry of Environment and Water Management (Környezetvédelmi és Vízügyi Minisztérium, KVM), the Ministry of Agriculture and Regional Development (Földművelési és Vidékfejlesztési Minisztérium, FVM), and in the framework of the Hungarian Academy of Sciences (Magyar Tudományos Akadémia, MTA) with their respective partner unions. However, the last-named agreement stipulates that each employee without a university degree in research institutes should receive the whole amount of the difference between the new and the old wage scale, regardless of whether their actual wages exceed the minimum thresholds set by the law.


The sectoral agreements will doubtless have an invaluable impact on the fair distribution of the available resources for public service employees' pay. Especially important are the efforts of unions to take care of disadvantaged groups of workers. On the other hand, using the government's special reserve fund obviously cannot solve all of the problems. According to the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM), which coordinates the various ministries' wage policies and reviews their sectoral agreements, the government will make a decision on the utilisation of the reserve fund in September, but the amount of the fund is less than 1% of the whole budget for the current pay rise in the public sector.

Moreover, as a spill-over effect from the pay increase for public employees, demands have surfaced among other groups of government employees. Certain groups of civil servants, employees of the public administration who lost their civil servant status due to the amendment of the Law on Civil Servants in 2001 and employees of state-owned companies (such as railway workers) have demanded increases comparable to that awarded to public service employees. Naturally, these claims can be considered as these workers' early proposals for the agenda of bargaining round for 2003, which traditionally starts in early September. Following the steep pay increases of 2002, the government is increasingly concerned about the growing budget deficit. Not accidentally, at the first session of the recently re-established National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) (HU0206101F) the finance minister, speaking about incomes policy for 2003, has already called for wage restraint from the unions.

It is a ground-breaking new development in the recent history of public sector industrial relations that the general framework agreement on the distribution of wage increases concluded at national level was followed by a series of sectoral and subsectoral negotiations at the ministerial level. This fact in itself highlights that the attitude of the newly elected government to social dialogue differs from that of its conservative predecessor. Moreover, the negotiating process has been surprisingly smooth, wherever the governmental partners have taken into account the trade unions' proposals. On the other hand, the trade union side has also managed to develop a unitary negotiating platform despite the fragmented nature of Hungarian unions. The central agreement in KOMT set the tone for sectoral negotiations, and the parties easily concluded sectoral agreements which accepted the national-level recommendations. This hierarchical, coordinated structure of negotiations fits well into the logic of the distribution of central funds. On the other hand, unions claiming extra raises in certain ministries (National Cultural Heritage, the Interior, and Health, Social and Family Affairs) face a more difficult situation, and on these points the agreements contain more recommendations and wishful thinking than binding provisions.

The other explanation of the frequent occurrence of recommendations, rather than binding provisions, in the sectoral and subsectoral agreements is the institutional set-up of public service employment in Hungary. Although public services are financed by the central government, only a minority of public service employees are employed directly by the government. The majority of public service employees are employed by public service institutions, which belong to (are owned by) ministries, local governments and non-governmental organisations. The vast majority of public service employees are employed by local governments’ public service institutions. Since the Constitution guarantees the autonomy of local governments, and subsequent legal regulation also provides for wide-ranging autonomy, local governments enjoy great freedom over how to use their budget for financing public service institutions under their authority.

This freedom for local government caused frustration for trade unions when they sought to agree on the detailed rules of the implementation of the current government pay measures in KOMT, and they would have preferred the government to issue a decree on the rules - however, the government was not in the position to instruct local governments as to how to utilise the excess resources. Therefore the recent series of negotiations at KOMT and at ministerial level could only set recommendations, issue calls to local governments and instruct local trade unions to demand fair distribution of funds and secure wage increases to a certain extent for each public employee.

However, the role of local governments, and other public administration units making decisions on the funding of public services, is a more general problem of public sector industrial relations. In public service institutions (schools, hospitals, old people's homes etc), the management of each institution conducts collective bargaining with local trade unions, while the actual decisions on wage funds are made at higher level by public administration units (most notably in ministries and local governments). The local governments and other higher-level decision-makers are excluded from collective bargaining, though in fact it is they that make decisions on the budgets of the workplaces. This creates a fundamental obstacle to meaningful collective bargaining within the institutions. The law on public service employees (Act XXIII of 1992, Article 4 (1)) allows for a reconciliation process only for trade unions at the local level (with local governments), at the sectoral level (with ministries) and at the national level (with the government).

The July 2002 KOMT agreement also referred to this law when it provided for further negotiations at the sectoral and local levels. This is the procedural reason why the present series of sectoral agreements are not deemed as collective agreements, neither are they included in the compulsory registration and statistical system for collective agreements run by the Ministry of Employment and Labour. Nonetheless, while the contents of some of these agreements are still relatively meagre, they might prove to be the first steps under the new administration towards comprehensive long-term sectoral agreements in the public sector. (László Neumann and András Tóth, Institute of Political Science, Hungarian Academy of Science)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment